Okay, everyone.

Welcome back to another episode of Ride In Your Own Pockets.

I'll just start by saying for you guys, we never miss a beat.

We always put out an episode, we record them in advance.

Great.

For us, this is the first time me and Dave have actually sat down in two weeks?

At least two, yeah.

Feels like longer, felt like longer than that, but yeah.

So if it's a bit, if we're a bit rusty, we're knocking the rust off, just forgive us a bit because we haven't been doing this, but we have a good topic.

We recently had one where we had to kind of butt heads a little bit.

So now we did one where we get to kind of hold hands and sing Kumbaya because I think we'll be in full agreement here.

Maybe, maybe there's a caveat I can push back on, but we're gonna talk about buying power and how much you should use and when you should use it.

And is using all of it good?

Is using your margin good?

You know, how crazy do we go?

How much do we YOLO?

So that's gonna be the premise of the episodes.

Why don't you get us started, Dave, with what you're thinking?

Okay.

So one of my traders that I'm coaching came to me.

It's been a few months now, but he came to me and he said in the most in despair almost saying, Dave, I ran out of buying power.

Like, this is terrible.

What do I do?

And the first thing I think is this is awesome.

Because what it tells me is you fully internalize the process.

You have been on a path to confidence for the strategy you're trading.

You're trading it.

You've built up your size slowly over time.

And so much so that you're running out of buying power.

This is an awesome problem.

And it took me a lot of years to understand that it's a good problem to have.

And that's partly because of my upbringing.

My dad was very conservative with money.

And I remember him telling me about investing and teaching me about margin.

And I don't remember all the details about what he said, but I do definitely remember one thing he told me to avoid like the plague, and that is a margin call.

This would be the worst thing in the world.

That was my upbringing and that was my mindset, very conservative and that would be a bad thing.

It would be totally irresponsible if you get a margin call.

Well, and it's funny now that, if anyone uses Interactive Brokers, you definitely saw it where it's like the welcome message now pops up, it's got a little box and says, you're not in liquidation risk yet, but, you know, you're getting close, and it's got a giant wall of text.

And yeah, I agree wholeheartedly that when you're when I'm seeing that, that's a good thing.

Actually, I kind of miss it if I go a couple days and I haven't seen that.

So, but let's start first of all, why do you think that user was so in despair about the fact that, you know, he was he was seeing that he was at a margin and he couldn't take trades?

Do you think it was is it a risk thing?

Is that why he was nervous?

Or do you think there's something else kind of at play?

Well, for him, I think he thought he had reached a ceiling in what his trading could do.

And I think that's the first thing you think.

You're not really, or at least I don't monitor my buying power all the time watching it tick by tick or anything.

So usually when it happens, it comes out of nowhere.

And the first time you see it, you're like, Oh, you're right.

It's an error message that comes up.

You feel like you've done something wrong.

Ultimately, it feels like a ceiling to your trading.

You can't get bigger.

But what people don't realize is it's a really good thing when this happens because of the reasons I listed before.

But also, the hard part is coming up with the ideas.

The hard part is coming up with a strategy that works.

The hard part is coming up with a strategy that works and getting confident enough to trade it with size.

That's the hard part.

Once you run out of buying power, I mean, that is a really fun problem to solve because there's so many ways to solve it in a way that like, so most traders think they're at a ceiling there, but there's lots of ways to solve it to sort of optimize your buying power and you know, figure out creative ways to use it.

Those are fun problems to solve.

Well, I yeah, and I think we should first tap on that, trying to find ways to use your buying power, because I think that's, again, hugely important where a lot of people look at this and say, oh, well, you know, I I want to always keep some cash on the sidelines or whatever, and they should look at it completely different, where if you have a single dollar of unused buying power, that is potential return wasted.

Like, say, say you only make, you know, 2% on your strategy.

Your year is like, it's not a good strategy, but you you still make money on it.

Well, if you can if you have a $100,000 sitting there, you should look at it as, oh, my strategy makes 2% a year, I just I'm missing $2,000 by not investing that particular money inside of inside of that strategy.

And that's the way I think the first reframe kind of helps is that as soon as you get to that point, you're hitting that level.

But then the other thing that I think that's important is when you hit that level, I think of it as kind of freeing.

It's like, okay, I have nothing else immediately that I have to do because I have strategies that are utilizing all of my buying power and hopefully they're profitable in the long run.

It almost kind of like opens up a little bit and says, okay, now I get to work on what's next.

I don't have I'm not pushing to get I I feel like I hit a ceiling kinda just like that guy did, but I frame it myself as a good way saying, Okay, now I get to tweak and to play and to do more of the fun stuff and less of kind of building my way up to that ceiling, if that makes any sense.

Yeah.

I think understanding your constraints is often freeing and it reduces your universe by putting restraints on you, but it helps you think very clearly and focus on the real problem that you're dealing with.

So yeah, I think that's totally true.

So do you remember the first time you ran out of buying power?

Yes.

And I was terrified.

And I think everyone is, right?

Because you go, oh, no.

You know, you get a, yeah, a notification or a message or an email and you get, you know, you get the dreaded margin call and you're like, okay.

You get that first kind of instant fear, but then you look at your account and hopefully it's green or or very slightly red and you're like, okay, well, by the end of the day, by the time I unwind a lot of these positions, it's it will go away and that's fine.

But yeah, I definitely think it's because it's it's such a scary word.

They have like scary movies.

I don't know if you've seen the movie Margin Call, they got scary movies about it.

They've got all like it's, you know, it's memed about online.

So I think it takes a second to kind of reframe that as, okay, this is actually a good thing, right?

I've done something well, My problems have now changed.

It's not about building enough strategies to max out my buying power, it's about optimizing strategies and refining and doing things like that.

But yeah, that first time scared the crap out of me.

Yeah.

Yeah, the same with me.

Mean, didn't I think the first time it happened, was trading with Scottrade.

I had a Scottrade account back in the day.

And I remember it happening.

And like I said, my upbringing, like I thought, like somewhere deep inside, thought, okay, like, are the police going to come and tell me that I did something wrong?

Like, is there going to be some fine?

It was just so ingrained in my upbringing that it's hard to shake the nagging feeling when that error message pops up.

Well, I think this is, it's a good time to kind of separate too between day trading and swing trading, because I think those are different as well.

If I'm ever getting that margin call and it's all on my swing trades or long term holds, I'm still terrified.

And I think that's kind of rightfully so.

But the way to look at it is, you know, is this running up against the limits of your buying power?

Is it actually increasing risk?

Because in a lot of cases, it's not.

Right?

It means you've got a whole bunch of longs on, maybe you got a whole bunch of shorts on as well, and and the fact that you were able to use buying power to hit both sides of the markets, the longs and the shorts, and and it spread out a bunch, you know, maybe 20 different trades because you're auto trading instead of one and because you went all in on the account.

I think that's the different things.

People kind of equate margin call to I'm taking a whole lot of risk, but what we're doing as systematic traders quite often spreading out risks across different trades, different strategies, long short, for me, different time frames as well.

So I'm less worried about that.

I just think that that is something to because that is a scenario where you could actually have somebody show up at your house eventually if you're Yeah.

On margin and then something happens crazy overnight, you know, war or something, you could owe them a lot of money.

But yeah, when you're talking day trading, you're like, well, at the end of the day, this goes away.

At the end of the day, you know, I always get to the point at the end of every day where I have a little bit of excess cash in my account, not only margin, so that it's less scary.

But yeah, I think it's important to make that difference instead of someone going, oh yeah, so I'm just gonna, you know, YOLO a Fartcoin or something or some crazy stock or, and just, it's okay to do margin.

We're saying responsibly and in a controlled risk manner, again, preferably reducing risk by using more margin.

Yeah.

So what dawned on me early on was having your risk when you're trading a system and you have your risk under control, the buying power is largely irrelevant.

You might have a whole bunch of money at work.

I call it money at work, like how much you have allocated.

But that doesn't mean you're going to lose all of it if the trade goes wrong.

If the trade hits your stop, you're controlling your risk.

So you're risking a certain amount if the stock gets hit.

That's completely relevant from how much money is at work.

And in fact, you probably want, mean, there's some really good strategies that have dynamic position sizing where you're taking large positions for small amounts of risk.

So it's sort of designed to use a lot of buying power, and that's how it works.

So they're, of course, related, but they're very different concepts when you when you're doing it right.

Yes.

And again, I think it's it's have to I hate using, like, var, like value at risk.

That's a metric that some people use that I think is just really, really dumb, but it's kind of like that.

You're just looking in and that's the one of the main benefits I think of trading when it comes to day trading versus swing trading is that value that you're actually risking is way easier to control and to quantify because, you know, you're like, okay, I'm risking, you know, dollars 1,000 on every trade and, you know, I've got five trades open.

So unless one of them halts or something craziness, it's an incredibly rare event, I know at the end of the day, worst case scenario, I'm losing $5,000.

Right?

If the stops are in and and all that's placed, it's good to go.

Again, yeah, the risk gets a little bit scarier when it starts to come to, you know, dealing with overnight risk or gap risk, which again, depending on what you're trading can happen, but hopefully you've kind of prepared for that some way in your system because again, that can be problematic.

But again, I always like the idea of using margin to reduce risk.

And again, in a perfect world, every trade I'm putting on is from an uncorrelated system or is uncorrelated in some way.

Like, I'm looking down now in my day trades, I've got a bunch of longs, bunch of shorts.

So as more trades come in, it's not like I'm adding additional risk to them because, you know, eventually I'll have 20 trades on and some will be long and some will be short and, you can go from there.

So that's yeah.

The the real thing to differentiate is, right, margin or lack of buying power or, you know, all of that does not equally increase risk and make sure you're focusing just on the risk side of things.

And and whenever you get that warning, you go, okay.

And calm down.

It'll still probably get you every time for a while.

Yeah.

So as I guess we should also mention one of the differences between day trading and swing trading as far as buying power goes is intraday day trading, you're getting more buying power than overnight swing trading.

So I think you get twice your money, up to twice your money in margin for overnight.

And then it varies quite a bit for intraday, but it's at least three, sometimes four times you're buying power just just with a regular retail trading account.

Yeah.

And then when you get to a certain size, you get portfolio margin, you kinda get the whole whole thing and yeah, so understand those rules, right?

Understand where you are in them, how much money.

Because sometimes I was talking to a trader once who didn't know there's, I think it's 110,000 in Canada where you get portfolio margin.

It's gonna be different, we were in different countries, so it's gonna be slightly different.

And he was like just shy of that.

I'm like, we'll just go put in an extra couple grand and then you're at portfolio margin, he goes, and then opened up a bunch of things.

So definitely understand the rules.

I don't know.

I know in Canada it's different per broker.

I don't know if it's more federally regulated in The States or not, but it's definitely something to keep an eye on.

But let's move on to, okay, so we have buying power or we have the margin.

We've determined that it's good when we've kind of reached the limit of that.

Again, assuming all of the caveats we said, right?

You're not just increasing risk or YOLO ing into something crazy.

So then what?

Right?

So we obviously aren't done.

The whole point of kind of systematic trading is you're never done.

So where is it that you get to the point where, A, do you just leave it?

Say, okay, if I'm utilizing my margin every day, I'm good to go.

Do you try to optimize further?

Do you Is there any kind of next step after you hit that button to continue to crank up the amount of money you make?

Because it's no longer applying more risk and capital, you've hit that limit.

So where do you go to then?

So it's a good question.

I think a lot about efficient use of buying power.

So what does that mean?

You hear some people sometimes brag about how their account is a certain size, right?

But really the thing they should be bragging about is that they're making a certain amount of money with a smaller account size, That would be the thing to brag about.

That's the goal is to make lots of money with a small amount of capital.

So that's really the ultimate goal of what you should be doing.

Any disagreement?

Yeah, percentage gain.

Again, I'm more of an R kind of multiple.

But yeah, if you can make, it's better to make 50% with a $100,000 account than to make, you know, a 10% with a $200,000 account that definitely Where I thought you were going is when you said efficient use of capital was just, you know, am I hitting it every day?

Because if not, why do I have that money in my account at all versus, you know, I was talking to a guy who had a HELOC on his house, and he had a million dollars in his brokerage account, and he had a HELOC on his house for half a million dollars, and he was paying like 7% interest rates on it.

And I asked him, and he never got anywhere close to utilizing half his account because he was terrified to put that much in the market.

So pay off your house.

Like, you know?

Yeah.

If you're not using the the capital there, because then you're kinda making 6% after tax on the other side and then utilize so, yeah, sometimes there's a lot more freeing activity that happens with a smaller account because he was way more comfortable.

Now, ideally, in a perfect world, he would utilize all that money to make the highest percent he could, but I'm like, you're human.

So and I was like, it's a HELOC.

If you want it back, you can Yeah.

Take it back if

you want.

Yeah.

And just to be clear, HELOC is home equity line of credit to borrow against your house for people that don't know that term.

Yeah.

And we're not financial advisors by any means.

Absolutely not.

We're we're Don't take anything we say as gospel by any Do your homework.

So here's one experiment I did.

I said I didn't follow my buying power tick by tick, but in my application that makes trades for me, I started logging it throughout the time.

And put, I I'll actually put a chart up of this on my site.

We'll link to it in the show notes.

But it's really interesting to see your buying power utilization over time.

And what you'll notice is usually when you run out of buying power, it's usually like one position that takes up all the buying power.

And if you keep close tabs of what you're doing, if you're taking a lot of positions and keep tabs of which one it is and how much each one is consuming, you can use that to really optimize what you're doing.

So a lot of times what you'll see is, so I have a chart of like ero to a 100, how much of my buying power is utilized at any time.

And it's not like it goes to a 100 and it's pegged there.

It's usually way lower than you might imagine.

But then you have these huge spikes because of your, you know, you're taking some large position that happens to use a lot of buying power.

And that's what, causes the buying power to be consumed.

So once you examine that and look at that and think about it, there's lots of things you can do to make sure that doesn't happen again or use your buying power more efficiently.

So the first step is to do it by symbol and keep track of that over time.

And I can guarantee when you do that, you will come up with ideas about how to do things differently or

do So things more I have an idea.

And then how is it that one takes up that much?

Is it just because that the risk on that trade was just so tight that the amount of you know, buying power required in order to take the trade was so much higher because, you you're risking a very tight amount.

Is that usually what happens is that you've got one stock or is it just that this stock is such low movement or ATR or something like that that, to try to get the same return that you're after, you have to trade smaller.

Is that usually what's happening?

Yeah.

So, there's a couple of diff that's one scenario where you're just you have a high priced stock, your strategy finds a low risk situation where you can take a lot of use a lot of shares.

And if your strategy uses dynamic sizing like that, your money at work for any position is gonna be wildly different.

So a lot of times that's what happens.

And once you figure that out, one thing you could do is in your code, and I've done this before, have a maximum money at work to be used.

So by default, it would use the full amount, but you could have some threshold or some ceiling that says, okay, even if normally you would be using more, maybe you use something smaller than that just for when this situation occurs so that you can take more positions in your strategy and you're not stuck with this just one position.

Let's say you're trading your strategy trades multiple times a day, dozens, a couple dozen times a day maybe, then you don't wanna get stuck in one position and not be able to take all those other ones.

So there's things you can do to spread that out so that one doesn't consume all the buying power and you can make room for yourself to take as many positions as you need for your strategy to work well.

Well, and that's kind of where I was going with that, where I think it would make sense.

And I think the main thing that people have to do when they're maxed out of buying power is to continue to run their back test at the end of the day to look at what they would have missed.

Because what if, for example, the stuff that you missed wasn't that great to begin with?

Right?

That tells you a lot of things where, hey, it probably means a trades taken kind of later in the day aren't as impactful.

You know, what would happen for so, for example, that max buying power per trade rule, I could see that as a good thing.

I could also see that as a bad thing.

Because what if just by default of the fact that these things are having such low risk entries, you would have been better over the long run, just almost at that point, you're allowing a large percentage of your account in that particular trade.

If that ends up being the move, then then you should stick with it.

So I think that's a lot of things that people can do is do the do the what if, and it should be fairly easy to do where you, know, you run your trades at the end of the day, you run your back test, you do your normal reconciliation, there'll be a whole bunch of trades that your back test took that you didn't, and then you go, you know, sum those up over time and then see what you could potentially be missing out on to know whether or not you even need to do anything, right?

Yeah.

So you might be doing it right just the way it is.

You're totally right.

You could by analyzing your results and looking at what's consuming the buying power, yeah, you're gonna get a lot of ideas.

One might be just skip those.

Yep.

But you're right.

One, you know, the data might tell you, hey, you shouldn't be skipping those at all.

Like, that's, those are the only ones you should be taking.

If that's the case, then there's lots of things you could do there.

You could make sure you're only looking at those situations.

You could get rid of the trades that are consuming buying power that aren't really doing that much for the strategy.

I mean, there's so many ways to improve things there.

But the first step is digging into the details.

And there's just so many details to look at here that you can't just gloss over and ignore.

I mean, there's so much to dive into and improve in lots of different ways that you might not even think about until you look at the data.

So, all right, let's say, you know, you've looked at it and you're kind of okay with the fact that it takes these big trades every now and then and maxes your buying power.

You know, what's next?

Is it more just optimization?

Do you want to just shrink your potential total trade pool into more and more of those best trades?

Or is it one of those that you use the time?

Because this is something that I do a lot when I'm maxed out on buying power.

I think the one thing that we can both agree to avoid, which a lot of people would probably do is the, okay, I'm just, I'm done, I'm gonna go to the beach and just do the bare minimum work.

I always use that time to try to, you know, come up with the next potential strategy that, hey, hopefully your account grows over time and maybe that will free up some trading or you get income from another source you can put in, that will free up some as well.

But, what does the person do when they've hit that maximum cap and they don't really see a way around it?

Is it, again, less trades or is it just work on something else in the meantime?

So The trader that came to me with this problem, when we looked at their trades, they were trading he was trading three different strategies.

The one that was running out of the buying power or consuming the buying power wasn't performing as well as the other two strategies.

It was still profitable, but it wasn't as profitable.

And it was taking more trades than the remaining two strategies.

So, what do you do there?

Well, in any strategy, it's always better to start with something that trades more often because you have a lot more flexibility in improving a strategy.

So what we did there is we took that particular strategy and ran it through the strategy cruncher to figure out, okay, how can we have this strategy take fewer trades, but the trades that remain are more profitable than average.

So we basically were able to get rid of say a third of the trades.

So it's consuming more or less buying power, but the trades that remain are more profitable.

So it's like a double way to win here.

And what you end up with is just more efficiency.

And that's what I was getting at because I think when I feel like I'm doing really well and kind of, you know, cooking with gas and everything, is I'm walking kind of a razor's edge of getting right up to that buying power all the time, but then not missing too much trades after.

And I think that's the game that you have to play when you reach that level.

A, you know, as we've kind of been reiterating, it's a good problem to have that you've got so much so many good trading strategies that you back test, and they're running, and they're making you money, that's great.

But now the game just shifts, and it's that, you know, how close can I go to that edge to be maxed out as much as I can, but then not miss trades and and kinda back and forth?

And I think that ends up being a really interesting game of kinda optimization where, of course, you wanna make sure you're doing your optimization correctly and and all of that, but you wanna okay, hey, I've missed these five good trades because I was maxed out on buying power.

Let me kind of tighten up some filters and try to see if I can make my strategy a little bit better, but then you'll come across the other problem where you say, well, well, now I'm not using utilizing all my buying power at all, so either loosen it up or create another strategy or do something like that.

So it's very much a feels like kind of a an ebb and flow, a game that you probably will never be done, but you're just trying to stay on that line as best as you can.

Yeah.

And think about the situation where the one I just described where you found the strategy that's consuming the buying power, it's not really performing like the other ones.

You improve it so you're basically making it more efficient.

You are taking fewer trades, but the average profit is way higher.

What you're literally doing here is you are working on your path to confidence.

You are now more confident in that strategy because it's more profitable.

The equity curve looks smoother.

The equity curve is up into the right.

The next step for that once you realize you have some buying power is just like, and you're figuring out which of these profitable strategies to scale next, that's going to be all of a sudden, that's one in the mix that you can scale up.

So this is exactly how traders get better and make more money.

And you're right, it never stops.

You can tell that these problems are fun to solve.

Yes.

Yeah.

Because you're starting from a good place.

You're not, you're not starting from, you know, losing a war and trying to figure out how to win a war.

Right?

You're starting from a war that you're winning, and you just wanna you just wanna beat them a little bit better.

Right?

And Yeah.

Those are the times, again, that I think it's the most fun to not only be a trader, but to be a systematic trader.

As you look back at the end of the day or the end of the week, and your account is growing and, know, you're you're making money and and that's the goal.

And your goal should always just be how do I make more?

And that's, I think a big thing to hit on because these are the times I find where most traders could start to get a little lazy, right?

They can start to, you know, okay, I'm, you know, at the end of the week, I've made X thousands of dollars and that's great, know, I'm gonna take some of that out, buy some beer and do whatever.

And then they kind of eventually, when strategies degrade or change or something, they've either are behind the eight ball or just missed opportunity, right?

Just like what you talked about.

And this is why I think again, always recording, always looking, always moving.

And it helps to spell something that I think we dispel at least once an episode of systematic traders, which isn't you're just not you're not just setting up a bot and going to the beach and having a good time, right?

There's that that work and the work is just different, right?

It's not you're not pressing the button to buy sell stocks all day long, doesn't doesn't mean you're not doing stuff, you're, you know, refining things as they go.

So again, a good problem to have, but a problem nonetheless.

And I'll be interested to see if there's any comments of people who were still stuck in the buying, you know, maxing out buying power is is a bad thing.

I wonder if that's still gonna be a revelation to some or if our audience has already been there.

Yeah.

Well, I'll mention a couple more things.

So there's another example of a different trader that I worked with where we dug into this.

And it turns out that the trades that were consuming the buying power were the most profitable trades.

And how do we solve that?

Well, you get rid of all the other ones that aren't contributing.

You could just lop those off.

And then you figure out, okay, how can I get the biggest size possible when these trades come by?

And that's really I can tell you from all the traders I've worked with, that is when you're in that mindset of figuring out of the trades that I'm taking in this strategy, how do I trade those with the biggest size, the ones that are the most profitable?

That's literally what you do when you leverage up and that's how traders make a lot of money.

That is what they do.

We've talked about scaling up what you're doing in your strategy on episodes before, but it's hard to understate how important that is and how much it can improve your profitability going from something where you're trading.

Does it meet your criteria?

You're trading it with risk X from, okay, it meets my criteria.

How much risk am I going to take with it based on a probability that I know is accurate?

That's a big difference.

And it doesn't take much to start thinking about that, but that's really what we're talking about.

This is going to put you in a mindset where you're down the road of thinking that way.

And I will guarantee that that will improve your trading over time when you have that mindset.

Well, and let's also go just while you were talking, just thought, have you ever found anyone who kind of always uses as much as they can the buying power they have, like on purpose.

So what I mean by that, instead of using kind of a risk portrayed parameter, they use, you know, maybe percentage of buying power remaining.

It's something that I'd just been thinking about if, you know, for example, I know on average, my strategy will take five trades a day, right?

Just for example, does it ever make sense to, instead of doing a risk per trade, to change that and say, well, if I know on average, I'm gonna take five trades a day to take one fifth of your account in every trade, have you ever come across successful, I guess, buying power management in that way?

Or is it always the way we've been talking about where you just take more and more positions so you kind of hit that upper limit and then deal with it then?

Yeah.

I have run across traders and systems that do that.

And I have some system that does that where I know that it doesn't trade like X number of times a day, but I know there are going to be times where I want to use my entire account when this trade comes about.

In fact, it happened a couple of weeks ago.

I saw the situation and you have to drop everything and put your entire account at risk because it's such a good opportunity and

I'm sorry.

Just put your entire account in the trade.

You said your entire account at risk that could be construed.

Yeah.

Like, whatever buying power

you have.

The wife was about to come in and kick down the door and said, did what?

So yeah.

But that has taken me years to get to that point and to have enough confidence in it to do that.

But I'm just telling you that that's where you make real money.

And is finding out those situations and

So, do you liquidate current holdings to put it all in that account?

Or is it just programmed for whatever remaining buying power you have goes into that?

All the remaining buying power.

And I know that this particular strategy has these characteristics.

So I plan for it.

And I'm flat by the time the entry window comes about for this particular strategy.

Because I know it doesn't happen every day.

But I know there are going to be days where I need to put everything I have into the trade.

But that's a different optimization problem than the the ones we were mentioning earlier.

Yeah.

And that's why it was interesting to me is that if the strategy was that good, you know, have you have you tested or have you tried what?

Because if it really is that good, you know, my first instinct is why don't you just kill everything and just all in on, right, go completely to cash and then and then enter the trade.

Is it just too fast to do that?

No.

That's that's essentially what I do because so, you know

You said you were flat anyway, but if you weren't, right, could could would you, right, exit and then go all in?

Because I think I'm just I'm just trying to put myself in that shoes and I think that'd be very mentally hard, especially if I'm in some really good trades already.

Because obviously, the when this trade shows up, it's not a 100% certainty.

It's gonna be a very good trade, but not a 100%.

So to kinda get in that mindset where it's worthwhile, and I guess another way to word it is that if you're in cash at that period of time every day anyway, this strategy must be so worthwhile that it it it is better to do that than to kind of shoehorn in a different less performing strategy into that, which again, we're going back to a podcast that we recorded just a couple weeks ago where we talked about this, like where, you know, you're you're basically sitting in cash for this one event that occurs periodically, where that's better than finding lesser events that would occur at the same time.

Yeah.

Definitely.

And so there's even another wrinkle of this where so there's a window where these trades happen.

These Some trades are better than others.

You don't know right away.

There could be multiple signals that come through.

And maybe the third one is the one that you want to put way more risk on, but you've already taken two trades.

There's logic in there that says like, okay, here's my positions now.

I'm going to get rid of the ones that I know aren't going be good statistically and I'm going to put everything into the one.

So

This is fun.

I like this because then in my head I'm thinking, and this is the I did I did a whole video on my channel this week about how systematic trading doesn't remove emotions.

And it's like we we talked about, it just replaces them.

Because there would be times without a doubt that you would do that.

So you have three trades on from this, we'll call it like the mega setup.

And then that third trade or that fourth trade comes in, and you say, no, this one should be better, so I'm gonna kill those three, and I'm gonna go all in on this fourth trade.

There's definitely gonna be times where those three trades would have made a crap ton of money and then that fourth trade lost money.

So I'm just putting yourself in in the shoes and just saying, it's you you have to always know you're doing the right thing, but there's gonna be sometimes it's just it's not gonna feel good for sure.

Let's just let's just say that I'm so confident in that fourth trade when this happens that any any of those concerns are like I've well beyond them, far beyond worrying about that because I think and that's just because this the situation is so profitable compared to the others and it's easily seen in a back test like there's no like if you saw the results, you would say, there would be no question what you should do.

Well, and again, just love that because it just shows that getting that much confident dealing with something that you can never predict 100% is very, very hard.

But when you get there, you can obviously see the benefits of it, right?

Is that you'll be okay when that thing occurs that you didn't want to occur because you know, you're confident enough that over time that was the correct thing and you should have done it anyway.

Who cares what happened in this one instance that is, you know, random at the end of the day, but at the end of the you know, if you oom out long enough, if you didn't do this thing, the amount of money you would leave on the table would just be would just be crazy, right?

So you have Yeah.

And you don't have to have you're totally right.

You don't have to have like 100% confidence to design something like this.

Even if it's slightly more confident, it still could make very good sense to do with this.

And that's what you should be doing and you should be thinking about that.

But you're right, thinking about the probabilities, it's hard.

You know, it's hard to think about probabilities and it's a really good skill to have as a trader.

Yeah, always say mentally humans can grasp 0%, 100%, and then 50.

And then anything between those probabilities, brains just can't handle.

So that's why you need the kind of math.

Because, you know, sometimes when I'm playing, I play this one video game, it's like tactical game, but there's a certain amount of randomness every time you do something, and it'll say there's a 97% chance I'm gonna hit this shot.

And then it doesn't, you go, well, that's bullshit.

You're like, well, but but in your head, you know, you know, intellectually that three out of a 100 times you're gonna miss that shot.

But you see 97, you say, well, that's gonna happen every time.

And it's just because, yeah, our brain just doesn't it can't do very high percentages very well or very low percentages very well.

It does like the absolute extremes and then the middle ground, I think pretty good.

Yeah.

So, you know, we're coming up on time here and I've I was hoping to get some more.

Start podcast.

There's a couple of really good points.

I think there's enough content to do another episode.

Let's just tease it for the next time.

Think there's more to talk about with this topic.

Yeah, think that's probably what do you think?

I think that's a good place to

stop Yeah.

You got everyone teased, so I like it.

Yeah.

You'll have to come in for the next one.

But yes, so just to summarize, if you're not running figure out a way to run out of buying power.

And, you know, we gave some good suggestions on what to do if you're consistently running out of buying power.

And again, at the end of the day, think it's about walking that line and it seems sounds like Dave's got some good ideas to help us help us do that in the future.

But until then, until next time, I'm Michael Noss.

And I'm Dave Mapes.

We'll talk to you next week on Line Your Own Pockets.